Did you know that whole life insurance, or some variation thereof, is
bought more than another types in the United States?
Why do you think this is so? Is it because the people know nothing about term insurance? Not so! Term insurance is simple to understand.
You own $1,000,000 of term life insurance for a specific period of time and you die within that period the life insurance company pays $1,000,000, as long as you keep paying the premiums. Everyone knows about term life insurance.
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Permanent life insurance is a different matter. There is much more to
absorb when it comes to a permanent policy. You can consider the whole
life policy which is really a policy which lasts for the rest of your
life, even if you live to age 100.
The premium payments can be level for the entire period or, as with some modified whole life policies, you start out with a lower premium and it increases every year for 5 or 10 years then it levels off.
On the other hand you can contract with the life insurance
company to pay only for a specific period of years, 10 years or 20 years
for example, and the policy will remain in force for the rest of your
You can also arrange with the company to pay one lump sum and you have your single premium whole life insurance policy for the rest of your life.
Even the the variable life insurance policy is whole life based thus it is considered permanent life insurance. Variable life insurance is a whole life policy with an investment portfolio attached.
These are the basic variations of whole life insurance. Each life insurance company has a different slant to their modified whole life policies, however.
Whole life policies have guaranteed cash values which you may use
as you see fit. You may use these values as collateral if you want to
get a loan from a bank or other financial organization. On the other
hand you may choose to borrow the money from the policy itself.
The interest rate is usually lower and you are never under pressure to repay within a given period of time. Any outstanding balance, however, will be deducted from the face amount upon your death.
Whole life also earn dividends if your life insurance company is effective with their investments and also if they keep expenses down. Dividends are not guaranteed. These dividends are applied according to your wishes.
The dividends earned on your whole life policy can be used to
reduce premiums, can be paid to you in cash each year, can be left with
the life insurance company to accumulate interest or they can be used to
purchase paid up additions.
Paid up additions are tiny single premium whole life policies which increase the amount paid at death. They also have cash values which accumulate interest and they earn dividends as well.
Permanent life insurance policies are very effective, yet complex, tools. If you take the time to understand them you will more appreciate why more people buy them than term insurance. Whole life insurance can be kept for the rest of your life.
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